While there is nothing wrong with the occasional splurge, being disciplined in your spending is important and necessary as you begin the fresh start that bankruptcy provides. Failing to budget can result in a cycle of mismanagement from which it is difficult to recover.
Check out the top 5 budgeting mistakes people often make after filing bankruptcy and learn why you should avoid them:
- Not getting help. Studies have shown that the root of financial behaviors are often generational and learned early in life. Because financial issues are personal, people tend to seek advice from friends and family who are often suffering from the same issues. When financially struggling individuals do seek outside help, it’s usually in the form of self-help books or online resources. While somewhat helpful, these resources don’t offer personalized, expert advice for addressing the underlying behavior. You can seek out a financial planner or counselor from a nonprofit consumer credit agency. Both are good options. Consumer credit agency counselors are free.
- Unplanned sale/clearance shopping
It has happened to the best of us—your favorite store holds a flash sale or clearance event on your favorite thing to buy. You rationalize that buying now will save you money in the long run, but is this the right way to manage a budget? The term “in-store slack” refers to the budget cushion consumers subconsciously create for unplanned purchases. In this way, consumers actually plan to stray from their original shopping budgets. Studies show that some shoppers overspend simply by allowing themselves to aimlessly walk through every aisle of the store. If you tend to practice “in-store slack”, it’s best to be clear about what you need, create a list, adhere to it, and then quickly make your way to the nearest checkout. For online purchases, be sure to add up shipping costs to determine the true value of the sale item.
- Depending on overdraft protection
It’s called “bank account credit”. It’s convenient, there’s no preapproval process, it’s less risky than a payday loan; however, it can contribute to ongoing financial hardships for many people. Banks tend to apply the largest debits first—despite the order that charges are presented throughout any given day. They claim that this ensures large bills—like mortgages and car notes—get paid first and before the overdraft limit is reached. It also means that with most of the large bills being paid first, little bills like your fast food run for $5.00 or your convenience store purchase of chewing gum for $1.25 each get assessed overdraft/unavailable funds fees. That’s right—that small pack of Dentyne just cost you $31.25! What’s worse is that banks rack up so many fees, it can be very difficult to stop the bank account credit cycle—especially if your paycheck directly deposits into your bank account. A word of advice: just say no. Establish a budget, live below your means, and opt-out of overdraft protection if you aren’t disciplined enough to stick to your budget.
- Buying on the cheap.
When setting a budget, resist the urge to buy low-quality items. This isn’t to say that you should buy the most expensive brand available, but you should consider the investment quality of your purchase. What good is a sweater if you have to buy a new one every year? Think about it. Opt for quality items every time.
- Not making adjustments.
If you find that you’re consistently going over budget, you should make some changes. Instead of dipping into your savings account every month to make ends meet, getting frustrated, and risking abandoning your budget entirely, save a smaller, more reasonable amount consistently. Understand that a good budget is a work in progress. Did you underestimate your grocery bill? Do you need more money for your gas and electric bill during the winter months (A good rule of thumb is to take a 12-month average so you automatically create a cushion in the summer.)? Basically, if your budget isn’t working for any reason, make realistic adjustments that you can live comfortably with over the long haul.
- If you need help creating a budget, call our office at (404) 800-9939 and request contact information for consumer credit counseling agencies in your area.